YNAB Podcast Episode 62 - Bought a car; broke both my rules.

Hello YNABers. My name is Jesse Mecham and this is podcast number 62 for You Need A Budget, where we teach you four rules to help you stop living pay check to pay check, get out of debt and save more money.

I went into debt yesterday, and I’ll tell you more about that in just a second. I broke two of my rules that I thought I had in one day – two of my financial rules. They were never borrow money for a car; never buy a new car. I broke both of them yesterday. This is the car edition. This is the “Jesse broke both of his car buying rules” edition. Let me tell you how it went down.

It started five years ago – let me tell you a little bit of history. Julie and I bought a Chevy Prism a few months after we were married; before that we didn’t own a car. The Chevy Prism is one of the best kept secrets in used car-dom. It’s a Toyota Corolla built in the same factory as the Toyota Corolla, except it had Chevy on it so you didn’t have to pay for the Toyota symbol – and that car rocked. I mean, it was awesome. So we bought that. It was… Anyway, we bought that, it was a great car. Then on our way to Dallas when we were moving to work for that accounting firm, I ran over something and it totaled the car. So then we went to Dallas planning to buy two cars instead of just… Well, we were planning on buying one car, a family car, and then have the Prism for me to commute in, but that was totaled. So we bought two cars. We bought a Honda Civic and a Toyota Sienna – sweet van. And it was a white Toyota Sienna. I was with my friend, driving my Civic to work one day, and that thing was pulling so hard to the right and we realized that one of the tires was like grossly over-inflated – lucky it didn’t explode on me. The dealer that I bought it from probably wasn’t very reputable. Well, I know he wasn’t.

Anyway, that Civic we still have, although the Toyota Sienna we do not still have. A couple of weeks after the move and after having that van, Julie was on her way to the gym at five in the morning, she was turning left, there was a stop light at our apartment complex, she was turning left on her green light at a freeway, and this kid who had been drinking was also driving and hits her – luckily she was totally fine, luckily – and totals the van. So then we’re buying another… we’re buying our third car in like three weeks. And we buy this AWESOME Chrysler Town and Country limited edition from a friend’s parents. The friend that I worked with at this accounting firm, he said, “Hey, my parents are selling this van,” and he had a lot of fond memories of the van. I may contact him and ask him if he wants to buy it from us now. But anyway, I flew out to Huntsville, sight unseen, picked up the van and drove it back home. So, that was our van. It’s 12 years old; it’s served us very, very well. Unfortunately, lately it’s started having more problems than we care to put into it.

At about the same time we bought the van… maybe about a year later, for the past five years, we’ve been saving for a new van; and we have this category in our budget and it’s called “New Car”, and that’s what treated it for. So we would just pay ourselves; every month pay ourselves, pay ourselves, pay ourselves. Then when we paid off the house that freed up some money, so we actually were paying ourselves a lot more. Then we were getting to the point where we were setting aside enough money in this car category, I thought, “We could buy two cars” – not new cars, but two used new cars. And that seemed pretty good. We actually stopped making our car payment to ourselves because the amount was getting so high Julie was starting to talk about, “Hey, we could buy this type of car,” and it was some insanely, gaudy car, you know – it wasn’t a van, it was some kind of an SUV. So we stopped making contributions to our new car fund. I was actually using Betterment for it just recently, because I’m just a big fan of that one. So we were using Betterment, REALLY conservative allocation for the investment, and it was actually making pretty good money for us. Not to guarantee that you’re going to make money – I’m just saying that’s what happened with us. So we stop making payments there and then we have this money. Then we’re just sitting on the money but we’re thinking, “Man, how cool would it be if we just kept driving this gold Chrysler Town and Country limited edition?” But things kept going wrong with it. $150 a month for repairs is my standard fare with a ten year old Civic and a twelve year old Chrysler Town and Country limited edition; but that was starting to kind of catch up to us – the $150 was starting to not be sufficient. And so Julie and I kind of said, “Well, let’s go look at vans.”

So, we went to a Honda dealership, looked at the 2013 Honda Odyssey – which is just like the 2012 Honda Odyssey – and that thing looks like a car. I don’t know what to tell you guys. I think it’s really cool. I wish I was cool enough to say that vans are lame, but I’m not – I think they’re cool. I think it’s cool that all my kids fit in it really well and that it has a cooler in it where you can put cold drinks; and I think it’s cool that the doors open on their own. Who thought that? I know that’s been around for a lot of years, but not for us; not for the Mecham family. So, apparently in the last twelve years they’ve made some significant strides with car technology because we were looking at that van and thinking it was pretty sweet. Julie wasn’t sold, though; and of course, it’s her final call.

So we go back, I don’t know, Friday, and we test drive. And we’re there with all the kids, but the dealership here in Utah, where they’re selling vans… it’s like the number one Honda dealership in the country. I guarantee we sell more vans here than any other place in the country – guaranteed. So, we’re there, free popcorn, free soda, we’re watching Cars. I’m thinking, “This dealership, they really know how to handle all these kids,” because the kids were thinking, “How is this possible that there’s all this free stuff here?” Well, it’s not free, kids, but let’s pretend it is and enjoy ourselves. Julie goes on the test drive, she comes back. Test drives, apparently, basically seal the deal, because she came back and suddenly she’s… you know, she’s always so aloof on purchases, always ready to walk away on a whim, and she has the will of, I don’t know, just an iron will. I’m weak. I’m so soft. I’m just thinking, “Oh, I want that,” but not my wife. She is a rock. So when she comes back and just kind of gives me like this raised eyebrow look, I knew we were sold. So I just took it for a test drive, just as like a symbolic test drive at that point. Come back, I tell our salesman Ray, I said, “Ray, we’ll be back tomorrow.” He’s saying, “Hey, we’ll give you this deal.”

What we were doing, he’d called me earlier in the week and said, “I’ve got these 2012 Honda Odysseys, top of the line, everything under the sun loaded in them,” and the only thing I didn’t want personally was the DVD player. I like having my kids stare out the window on long car trips – I think it builds character. But that’s kind of built into that. So, he’s saying, “Hey, these are 2012s and we’re giving you seven grand off.” I looked, I’ve tried to do my research, I’m not a big car guy – I don’t want to spend like an equivalent full-time work week doing car research. But I did look at invoice pricing on Edmond’s and True Car or something from American Express; I called Costco, I got the membership dealer price there; and it was coming in under what everyone was quoting, like two grand underneath, or about $1,500 underneath invoice. So I thought, “This is pretty sweet, and we’re not paying a premium on the new one, but we are getting the new body style.” And I didn’t want in ten years to be selling this van and have it be the old body style; I wanted it to be the more recent body style, even if it was an old van. So I thought it would help the resale value. So, I’m saying, “Well, yes, we’re going to buy a new one – a year old, but still never been driven type of new vehicle.” So, strike one against my rules. Not the four rules – you can’t have strikes against those things; but you know, my car buying rules.

Second time now. We go in and we’re ready to basically ink it up, and we’ve got the money obviously – we’ve been saving forever for it. And Ray says, “I forgot to tell you…” Oh, I’ve got to tell you guys this one thing. This other dealer… you know, I contacted a couple of other dealers because I wanted to make sure we were actually getting a deal. He tells me what the price is, I tell him what these guys are pitching for the price, and he’s like, “Well, it must be a mistake,” and I said, “Well, yes, you probably say that to everybody.” And he’s like, “No, really, seriously, that’s a mistake. They must have told you wrong or missed a digit.” And I was like, “Well, I’m going back there today.” So we go in there and Ray says, “Guys, I forgot tell you…” he’s like, “Well, I didn’t forget to tell you, I just didn’t know. I apologize, but in order to get this seven grand off deal you have to finance it.” So immediately I’m thinking, “This is it. This is that sneaky part of the sales tactic where they get you.” And I thought, “Dang! I don’t want to walk away and I don’t want to borrow money.” So then I said, “Well, we’re not financing the vehicle. We just want to pay with cash. What’s the difference to pay with cash?” So he comes back with a cash price. He gives me the cash price and it’s good – you know, it’s what I would have gotten with the other dealer through a couple of membership programs, that’s the kind of deal. So I’m sure hard drivers can save another $800; I have no desire to spend a week of my time to save $800. But I’m looking at that and he’s like, “Yes, it’s basically…” it was like a $2,500 difference to finance it. And so I’m saying, “”What’s the rate?” He said 5%, which is insane, but… Hey, you know, you can buy a house now at, what 3%. And he said, “Well, here’s how you work it out. You make a big payment upfront and then three more payments of X to close up the balance.” So, to make four payments, meaning that we save $2,500.

I don’t know if the dealer was being sneaky or if they actually… I think he was being honest with me and that he just missed it; or he’s such a good salesman that he just appeared honest. I’m going to call it honesty. So, we did it. I now owe money on a car. And I’ll report back when it’s paid off. I don’t like the hassle factor of having write one more… pay one more bill and all that, but for four payments… I promised to do the first payment and Julie promised she would do the next three. I made her promise that. We should have it paid off, so… Money’s sitting there just waiting, and my calculation was we’d pay $80 in interest or something on it.

So, that’s how I broke two of my rules, purchasing a car. I bought it new – well, a year old model but never been driven before – and I financed that sucker. And I can’t wait to pay that sucker off. And I feel okay about it. I try and be fairly pragmatic in my approach, with my advice. I try not to be super-dogmatic in how I feel about things. You guys know I use a credit card for most of my transactions. I trust the budget. I trust where it’s gotten me so far; I trust that the money I have saved for that car is really money I’ve saved for that car; and I trust myself that I won’t blow it on something else. I haven’t for five years – I won’t now. So, the budget ends up giving you a lot of information about yourself and it teaches you that what you can do… I mean, basically it shows you what you can do with your money. It shows you your habits, it shows you your weaknesses, your strengths. And you can play certain games, I think, if you’ve been doing the budgeting game long enough and you’ve been doing it well. So you follow YNAB’s four rules and you learn that not everything is black and white. You can do certain things because they’re convenient or whatever, and you’re fine with it because the budget makes the decisions and the budget is kind of your guiding light.

Tomorrow is Christmas,* so Merry Christmas to everyone – best day of the year. I’m looking forward to it. I wish everyone also a Happy New Year. Although, no, I’ll be doing one more podcast, so I take that back; I rescind my Happy New Year – I’ll give it to you later. Use the break during this Christmas time to talk about, you know, what we did last time; just use it to kind of regroup a little bit and see where you got caught red-handed, so to speak, with some big bill this last year, see if you can’t ready yourself for it this next year. We’ll be doing our “Cash for the Holidays” program; in January we should start doing the sign-ups for that. I kept it fairly small this year, going to keep it small again next year. It’s where I kind of personally coach people in saving up cash for the holidays. There are about 400 people that all paid cash for their holidays this year, and they’re merrier, I’m sure, because of it.

Anyway, Merry Christmas to you all. Until next time, follow YNAB’s four rules and you will win financially. You have not budgeted like this.

*This podcast originally aired December 24th, 2012.